1.26.15 - Russia Becomes Junk While Europe Holds Its Breath After Greek Vote
Gold last traded at $1,281 an ounce. Silver at $17.93 an ounce.
The investment markets are focusing on two major stories at the open of the week.
Topping the headlines over the weekend was news that voters in Greece rebelled against the austerity program imposed by the European Union in return for loans to fund Greece’s massive debt. The radical left Syriza party, which promises better terms for Greece, won a decisive victory in the general election yesterday and is close to winning an absolute majority in parliament.
The Greek rebellion against the EU may provoke a prolonged economic siege as Syriza seeks to negotiate new terms for a bailout while the EU waits for a lack of money to force Greece to comply with existing agreements.
In many ways, the situation in Greece is a mere symptom of a broader disenchantment with the European Union as more and more Europeans sour on giving up their economic sovereignty to the multinational organization.
Because the Greek election results were widely predicted, its impact on financial markets has thus far been anticlimactic, but the subsequent actions of the new Greek government may in fact have greater consequences down the road.
Perhaps overshadowing Greece was another story that broke Monday morning. Russia's economic problems just took a turn for the worse when Standard & Poor's downgraded Russia's sovereign credit rating to junk status. Not only will this raise the borrowing costs for the Russian government; it may also prompt a political response from Vladimir Putin's regime.
At any rate, the markets' reaction to these events in the US has been interrupted by the weather. A major winter storm is headed into the New York area and traders are headed home early ahead of what is predicted to be a transportation-paralyzing weather event.
1.23.15 - The Ironies of Switzerland
Gold last traded at $1,292 an ounce. Silver at $18.30 an ounce.
"Gold is Money, everything else is credit." -JOHN PIERPONT (J.P.) MORGAN, 1915 Congressional Testimony
There's a certain irony in the air as the uber-wealthy elite land their 1,700 private jets in Davos, Switzerland to discuss solving the world economic problems; including what President Obama referred to in his State of the Union speech as the greatest threat facing posterity - climate change.
Meanwhile this week, the world witnessed European leaders announce they will follow in the failed footsteps of the Federal Reserve by creating a $1.1 Trillion money printing scheme to help lift the EU economy out of recession. The euro currency has been falling ever since.
This week Swiss America released our 2015 newsletter, THE TRUTH ABOUT MODERN BANKING, which is packed with important news and perspectives about what to expect this next year. The forecast in 2015 is for increasing market volatility and rising gold prices (already up 7%).
As Swiss America CEO Dean Heskin states: "This year will hold many financial challenges, unexpected risks and potentially great rewards. The key is to grasp the basics of economics, seek wise counsel and then take action diversifying assets for safety."
We believe 2015 will finally expose the truth about gold, which is; Gold is neither a commodity nor an investment – it is the world's one and only trustworthy form of money ... just like J.P. Morgan once said!
Here's another irony which could be good news for you: Our sources report European banks, desperate to raise cash, are selling off a portion of their vast U.S. gold coin holdings at fire-sale prices - to the potential benefit of Swiss America clients. Call 800-289-2646 and ask your representative about this classic 'double-play' opportunity.
1.22.15 - ECB Launches Bond Buying Program
Gold last traded at $1,300 an ounce. Silver at $18.36 an ounce.
Gold is once again on the move after the European Central Bank (ECB) launched a multi-billion euro bond-buying program aimed at reviving a sagging euro zone economy.
President Mario Draghi said the ECB would print money to buy up 60 billion euros ($69 billion) worth of sovereign bonds a month.
Gold has risen about 10% since the beginning of January partially driven by the economic and political uncertainties in the euro zone.
Gold's strength could continue for some time according to Barron's technical analyst Michael Kahn.
"With no inflation in sight and the U.S. dollar still soaring, there is no real fundamental reason for gold and silver to move higher. Yet, that is exactly what they have been doing ," Kahn wrote.
"Price and volume continue to surge suggesting growing investor interest, and all of this is taking place as the dollar continues to rally itself. Since gold is priced in dollars, there is usually an inverse relationship between the two. Therefore, when both move higher together we can only surmise that there are more than currency factors at work," he argued.
"The bottom line is that the technicals tell us that metals are back despite the fundamentals and the sentiment surrounding them."
The moves by foreign central banks to loosen their monetary policies has some observers predicting it will let the Fed off the hook. There were thoughts that the Fed would begin raising interest rates as soon as mid-2015, but that would only occur if the US economy was clearly healthy.
The latest data doesn't particularly indicate a robust economy.
According to the Labor Department today, initial claims for unemployment benefits missed expectations for the 4th week in a row, holding above 300,000 for the 3rd week in a row (for the first time since July). At 307,000, this week's report is well above the 300,000 level economists were expecting.
1.21.15 - Central Banks Move to Loosen
Gold last traded at $1,293 an ounce. Silver at $18.19 an ounce.
World central banks appear set to loosen monetary policies, a change that will undermine their currencies, even though the financial markets will initially cheer it.
In a surprise move, Canada's central bank today announced it is lowering its "target for the overnight rate by one-quarter of one percentage point to 3/4 per cent."
The Canadians cited financial stability and downside inflation risks due to the collapse in the price of oil. The Bank is projecting real GDP growth in Canada will slow to about 1.5%.
The Canadian move is just the beginning.
Soon the world will feel the impact when the European Central Bank makes official its intentions to embark upon a massive Quantitative Easing bond buying program.
The program calls for bond purchases of 50 billion euros per month (about $58 billion) through 2016.
European and US stock markets are cheering this news, but other more sober observers are warning of the ramifications.
The former Bank for International Settlements chief economist warns that QE in Europe is doomed to failure and may draw the region into deeper difficulties.
"We are in a world that is dangerously unanchored," says William White, who is now the Swiss-based chairman of the OECD's Review Committee. "We're seeing true currency wars and everybody is doing it, and I have no idea where this is going to end."
White says the global elastic has been stretched even further than it was in 2008 on the eve of the Great Recession. The excesses have reached almost every corner of the globe, and combined public/private debt is 20% of GDP higher today. "We are holding a tiger by the tail," he explains.
He warns that QE in Europe is doomed to failure at this late stage and may instead draw the region into deeper difficulties. "Sovereign bond yields haven't been so low since the 'Black Plague': how much more bang can you get for your buck?"
"QE is not going to help at all. Europe has far greater reliance than the US on small and medium-sized companies and they get their money from banks, not from the bond market," White says.
"Even after the stress tests the banks are still in 'hunkering down mode'. They are not lending to small firms for a variety of reasons. The interest rate differential is still going up," he maintains.
Mr. White explains that QE is a disguised form of competitive devaluation. "The Japanese are now doing it as well but nobody can complain because the US started it," he says.
There is a significant risk that this is going to end badly because the Bank of Japan is funding 40% of all government spending. This could end in high inflation, perhaps even hyperinflation.
1.16.15 - Gold's Best Week Since 2013
Gold last traded at $1,276 an ounce. Silver at $17.75 an ounce.
Gold hit a four-month high this morning and is set to post its biggest weekly gain in 17 months. The rise comes as investors continue to seek safety from volatility in equity markets and in the wake of Switzerland unexpectedly abandoning a euro peg on the franc yesterday.
Gold is now at its highest level since September 2nd. It also posted its biggest daily gain in six weeks on Thursday. And it's heading for its biggest weekly jump since August 2013, up around 4.5%.
Gold's move comes despite the dollar rising 0.7% against a basket of major currencies, which would normally hamper gains for the metal. This shows there are a variety of factors providing strength in the gold market and, when the dollar inevitably continues its descent, gold could react even more strongly:
"The Swiss announcement has added a bit of an extra juice to the gold story but from an interest rates and equity perspective it looks like there is a more solid foundation to its strength," Deutsche Bank analyst Michael Lewis said.
Gold's powerful beginning in 2015 may be the start of something big for the rest of the year. Sterne Agee's precious metals and mining analyst Michael Dudas believes gold should continue to benefit from central banks' efforts to devalue their currencies:
"All these central banks are all going to debunk their currencies," said Dudas. "And it's going to default to just one currency that can't be debunked, and that's gold."
Many investors expect the European Central Bank to announce a major stimulus plan when it meets next Thursday. That could also drive gold higher.
With global uncertainty not expected to let up anytime soon, Dudas thinks gold could rally another 11 percent by the end of the year.
Said Dudas: "We see gold going to $1,400 by the end of the year."
Not only is gold's run occurring despite recent dollar strength, it's also occurring despite the absence of significant inflation. In fact the Consumer Price Index fell 0.4% last month, the largest monthly decline since December of 2008, led by the collapse of gasoline prices.
There is a common misconception that gold is mainly an inflation hedge. While gold has been renowned as a superlative hedge against high inflation, it also provides financial security and safety in a variety of other economic and financial scenarios.
Investors really need gold for safety and security when financial institutions are shaken. That is starting to happen now.
The financial shock waves from the Swiss franc's staggering ascent - one of the most acute moves in decades by a major currency - have hit firms around the world, with at least two brokerages suddenly going out of business due to the shock.
The scale and speed of the move, in what is one of the world's most-traded currencies, caught many financial firms off guard. While holders of Swiss francs gained, those with sizeable holdings of euros or dollars against the franc suffered heavily.
While big banks can absorb big losses on markets, the volatility in the franc proved too much for some smaller firms.
Alpari, the London-based brokerage firm that sponsors the shirt of English Premier League football club West Ham United, said it had to shut down its business.
Alpari's demise follows that of Global Brokers NZ., a small currency trading house in New Zealand.
Its director, David Johnson, announced on the website of affiliate Excel Markets, it could no longer meet the regulatory minimum to continue business.
The two could be joined by FXCM, a New York-based currency broker, which has already warned it "may be in breach of some regulatory capital requirements" after its clients experienced significant losses. Those losses, it said in a statement, "generated negative equity balances owed to FXCM of approximately $225 million."
Meanwhile, in Greece, financial institutions are in trouble for far different reasons.
Two Greek banks are said to have submitted requests for emergency cash to Greece's central bank due to a growing outflow of deposits.
This situation definitely bears watching over the next several days.
1.15.15 - Swiss Shocker
Gold last traded at $1,264 an ounce. Silver at $17.10 an ounce.
Gold prices jumped more than two percent after earlier hitting a four-month high on Thursday as European shares and the dollar turned lower after a shock move by Switzerland to abandon its three-year cap on the franc.
The central bank canceled its policy of pegging the Swiss franc at 1.20 to the euro to keep the currency from getting too strong and hurting the Swiss economy.
"Gold is gaining from a risk-off situation because nobody expected the Swiss central bank not to keep that cap, and this has created potential big losses in many places and is obviously triggering some flight to safety," Saxo Bank senior manager Ole Hansen said.
Gold prices are up nearly six percent so far this month.
This is happening a week before the European Central Bank (ECB) meeting which could add even further pressure on the euro in the form of a Quantitative Easing bond buying program. Swiss authorities are worried about pressure on the euro against the franc ahead of the ECB policy meeting next Thursday, in which it is widely expected to announce the dramatic monetary stimulus.
Meanwhile, here in the U.S., we have been greeted yet again by more economic data indicating the U.S. economy is stagnating.
The number of Americans filing new claims for unemployment benefits last week increased to the highest level since early September. Initial claims for state unemployment benefits rose by 19,000 to a seasonally adjusted 316,000 for the week ended January 10, the Labor Department reported this morning.
Economists had forecast claims falling to 291,000 last week. The prior week's data was also revised to show 3,000 more claims received than previously reported.
It's no surprise, then, that Americans do not believe the administration's claims that the economy is improving. According to a new poll by The Economist 52 percent of respondents believe there are more people unemployed than the president says. Only one in four think the unemployment figures are accurate. More than half think there are more people unemployed than the Bureau of Labor Statistics figures state.
Finally, the chief of the International Monetary Fund (IMF) Christine Lagarde issued her own warning on the global economy today, saying, “We see the global recovery continuing to face a very strong headwind. Too many countries are still weighed down by the legacies of the financial crisis, including high debt and high unemployment."
1.14.15 - Gold Continues on a Roll
Gold last traded at $1,234 an ounce. Silver at $16.99 an ounce.
Gold continues to shine brighter even while other financial markets, economic statistics and forecasts provide worrying signals to global investors.
The yellow metal is trading at 12-week highs as global investors flee volatile overseas equity markets and collapsing oil prices. In the last two months, gold is up nearly 7%.
Fueling the rally in gold is renewed pessimism in U.S. equities and worries in Europe over the implications of the Greek elections slated for later this month.
Gold’s short-term technical outlook remains positive, according to the chart work of Todd Gordon, founder of TradingAnalysis.com.
“There’s actually a nice inverse relationship with stocks and the gold market,” said Gordon. “As volatility is increasing, we’re starting to see gold get quite a bid.”
He sees bullion as breaking above a major downtrend begun in 2014 after bouncing several times from key support at $1,183 per ounce.
“We’ve broken up through resistance around $1,230,” he said.
Gordon is also keeping an eye on Greece’s elections. He says if something substantial were to happen with the results it could reverse the dollar’s rally, which would be even better news for gold.
Investment analyst Marc Faber also believes now is the time to buy more gold.
“I’m positive gold will go up substantially [in 2015] — say 30%,” Faber, whose investment letter is called the Gloom Boom Doom Report, said at Société Générale’s global strategy presentation in London on Tuesday.
“My belief is that the big surprise this year is that investor confidence in central banks collapses. And when that happens — I can’t short central banks, although I’d really like to, and the only way to short them is to go long gold, silver and platinum,” he said. “That’s the only way. That’s something I will do.”
Faber also singled out U.S. stocks as especially overvalued. So far today, he seems right about that. U.S. stocks have fallen today, on track for a fourth day of losses, as a World Bank forecast sparked concerns about weak economies and December U.S. retail sales missed expectations.
The World Bank cut its projections for the global economy, warning that the world cannot rely on the U.S. as its single growth engine. The bank forecast the world economy will grow 3.0% this year and 3.3% in 2016, down from its earlier forecast of 3.4% and 3.5%, respectively.
As if on cue, another disappointing US economic report came out today.
Retail sales in the U.S. sank in December as most stores posted weak results during the busiest month of the shopping season, government data show.
There are now fresh worries that lower oil prices aren’t helping the American economy as much as predicted.
Sales at retailers dropped a seasonally adjusted 0.9% last month to mark the biggest pullback in nearly a year, the Commerce Department said. Economists were expecting a much smaller 0.2% decline.
1.13.15 - Gold Rises on Stock Market Volatility
Gold last traded at $1,234 an ounce. Silver at $17.16 an ounce.
The price of gold has now reached a 12-week high as investors seek shelter from stock market volatility, a slide in crude oil prices and disruptive activity in currency markets.
Gold has risen nearly 5% already this month as stocks have come under pressure.
"That gold can rally despite the dollar being relatively strong says something of the uncertainty regarding the U.S. economy," said Mitsubishi analyst Jonathan Butler.
Interestingly, gold, oil and stocks are all interrelated. In fact, the ratio of the price of gold to the price of oil has been a good predictor of stock market volatility.
Analyst Kit Juckes of multinational financial conglomerate Societe Generale has researched the topic and says more stock market volatility could be in store.
According to Juckes, the price of gold measured in barrels of oil has been associated with spikes in stock market volatility over the last twenty years.
The most recent spike in the price of gold measured in barrels of oil takes it above its 1993 and 1998 highs, and as Juckes notes, "these have been associated with a pick-up in volatility as investors search for safe havens."
Because stocks are overvalued, that volatility is likely to be to the downside.
In fact, according to Mark Hulbert of MarketWatch, based on six well-known and time-tested indicators, stocks are more overvalued today than they’ve been between 69% and 89% of the past century’s bull-market tops.
Because gold has historically moved independently of stocks, it is a good diversification vehicle for a portfolio that includes stocks. With stocks more likely to fall from present levels than rise, that diversification is important.
1.12.15 - Rare Coins Set Records
Gold last traded at $1,233 an ounce. Silver at $16.58 an ounce.
There may be a great deal of uncertainty in the global economy and financial markets, but that isn't preventing the rare coin market from setting new records.
First, at a January 8 auction in Florida, a 1792 Birch Cent brought $2.2 million. This handsome price for the coin graded Mint State 65 (MS65) came in after the bidding started down at $1.5 million. In the same auction, another example graded MS61 sold for $564,000.
But both of these big results were not the end of the story.
The next day, January 9, another cent brought even more at auction. A 1793 Chain Cent sold for $2.35 million. The design on the reverse features a chain with 13 linking rings symbolizing the unity of America's original 13 colonies.
Clearly, Americans are seeking alternative assets to build and preserve wealth. And it's no wonder; the financial markets and economy seem to be in a precarious position.
Bank of America Merrill Lynch research shows that US stocks have never in history been more expensive relative to the rest of the world, surpassing both the dot com bubble and the housing bubble.
And a new report published by the non-partisan Information Technology and Innovation Foundation calls into doubt the US economic recovery based on statistics that show the manufacturing sector has not been improving and is in danger of derailing the recovery.
The best protection is diversification and, as the rare coin auction results show, tangible assets provide a great diversification vehicle for those seeking to build and protect their wealth going forward.
1.9.15 - Gold Set for Weekly Rise
Gold last traded at $1,216 an ounce. Silver at $16.42 an ounce.
Gold is once again on the rise today and is on the cusp of a 2.5% gain for the week, the first full trading week of 2015.
Gold prices have been supported by a weaker dollar, something we alluded to earlier this week, and continued declines in world stock markets.
Overnight, stock markets in Shanghai, Frankfurt, Paris and London were all sharply lower and today all three major US indices followed suit.
Political uncertainty in Greece continues to prompt European investors to abandon stocks and seek the safety of gold. Combined with the turmoil in the streets of Paris, investors are in no mood to own "risk" assets right now.
US stocks largely shrugged off a better than anticipated jobs report this morning, though the details of that report may have also muted any positive response.
The U.S. economy created 252,000 jobs in December, while the unemployment rate dropped to 5.6%. Economists had seen job growth at 240,000, with a jobless rate of 5.7%.
However, the labor participation rate slid once more, dropping to 62.7%, or the lowest level since December 1977. This happened because the number of Americans not in the labor forced soared by 451,000 in December, far outpacing the 111,000 jobs added according to the Household Survey. It is also the primary reason why the number of unenmployed Americans dropped by 383,000. Clearly, there is nothing to cheer here and even Wall Street traders are starting to see through the Labor Department's numbers.
It's little wonder that investors are moving to gold.
Gold last traded at $1,208 an ounce. Silver at $16.39 an ounce.
Economic conditions seem to be softening in Europe and the US.
Over the past 6 weeks, here in the US, continuing claims for unemployment benefits have surged the most in nearly 6 years.
In Europe, an official report showed consumer prices in the eurozone fell 0.2 percent in December from a year earlier, the first time they have turned negative since the dark days of the 2009 global financial crisis.
The latest data is adding concerns that Europe is headed for a new financial and economic crisis. Unemployment remains persistently high, the euro has been particularly weak, and the political upheaval in Greece is prompting talk about the stability of the 19-country euro currency union.
With the outlook deteriorating, pressure is mounting for the European Central Bank to take more aggressive action to avoid a downward price spiral that could undermine the economy for years to come. Top officials have already been signaling that they could announce a major bond-buying program later this month.
But the question raised by many economists is whether the European Central Bank has waited too long to act; and whether its arsenal is powerful enough to address the eurozone’s fundamental problem — a dearth of demand from businesses and consumers for goods and services.
In France and Italy, the second and third largest of the eurozone economies, the jobless rates climbed; with Italian unemployment reaching a new high of 13.4 percent. And in Greece and Spain, about a quarter of the population remains without work, a level consistent with economic depression.
With underlying economic data shaky, sooner or later stock markets will fall hard and most central banks have very few options left to stimulate other than trashing their own currencies. Gold thrives on fear and uncertainty.
1.7.15 - Distasteful Food for Thought
Gold last traded at $1,210 an ounce. Silver at $16.54 an ounce.
Financial experts are advising investors to be cautious due to a wide variety of issues they are following.
The U.S. dollar, at its highest level in nine years, is about to fall off its perch. The decline will catch most investors by surprise.
That’s the outlook of Lawrence G. McDonald, author of the New York Times bestseller, A Colossal Failure of Common Sense, and a market strategist who has a knack for spotting trouble ahead in markets.
Why is the dollar about to fall? Because that’s what the Federal Reserve wants since the strong dollar is starting to create problems in debt markets that hurt U.S. growth, McDonald maintains.
The underlying problem: Six years of cheap money, thanks to the Fed’s long-lasting zero-interest-rate policy, has put too much debt in the wrong hands. “When you leave interest rates at zero for six years, there is a price to pay,” McDonald says. Unless the Fed takes action and talks down the dollar, we may soon be paying the price, he argues.
That’s because the strong dollar is pushing a lot of that debt closer to default, which is creating systemic risk. Widespread defaults would ultimately harm the U.S. economy.
“The Fed is extremely concerned about the dollar,” McDonald says. “The Fed has to do something to calm things down. The Dow could drop a thousand points if this gets out of hand. I think the Fed is going to have to talk the dollar down.”
“They must talk the dollar down. It’s on a hurricane path of destruction,” McDonald says.
Because gold is priced in dollars, any decrease in the value of the dollar would be supportive of higher gold prices.
The dollar is not the only cause for concern.
The US stock market is overdue for a correction. There hasn't been a correction in the S&P 500 since the summer of 2011. (A correction is defined as a pullback of 10% or more.)
The biggest concern about the market is that stocks are no longer cheap.
The S&P 500 is trading at more than 16 times 2015 earnings forecasts. That seems a little rich when you consider earnings are expected to increase by less than 8% this year.
Again, gold is the best protection since it has historically moved in the opposite direction of stocks.
These concerns don't just reside in America; conditions in Europe are cause for concern.
Official data shows consumer prices across the eurozone fell by 0.2% in December, marking the first time prices have fallen in the region since the Great Recession.
The figure was worse than most analysts were expecting and the weakest since September 2009.
Falling consumer prices could herald worse times to come for Europe's stagnant economy.
It's widely expected that the European Central Bank will swoop in later this month with a program of quantitative easing, through massive purchases of government bonds, to try to stimulate the economy and prop up prices.
The problem there is two-fold. First of all, it may not work to boost economic activity. Second, it is likely to undermine the value of the euro. So, look for gold, in terms of the euro, to climb higher.
1.6.15 - Big Names Issue Warnings Amid Global Stock Sell-off
Gold last traded at $1,219 an ounce. Silver at $16.64 an ounce.
Stock markets around the globe are selling off sharply and two very prominent experts are warning of more economic and financial trouble ahead.
The US stock markets are down across the board again today, with the Dow, S&P and NASDAQ all sharply lower. This follows what happened in Europe and Asia overnight. Stock markets in London, Frankfurt, Paris, Hong Kong and Tokyo all sold off sharply as well.
It is at times like these that diversification really becomes all-important. In this case, diversification doesn't just mean buying stocks of companies in different industry groups or investing in different stock markets around the globe. Diversification can only be truly achieved through the inclusion of different asset classes altogether.
Gold is the ultimate portfolio diversifier because it tends to react differently to the factors that negatively impact paper assets, particularly stocks. According to data from the World Gold Council, over the long-term, there is a negative correlation between stocks and gold.
The trouble in world markets has prompted two prominent experts to issue warnings.
Mark Hulbert, editor of the Hulbert Financial Digest, who has been tracking 160 financial newsletters since 1980, says the recent performance of the US stock market is an indication that the bull market in stocks is over and it is much more likely that a bear market has begun.
According to data going all the way back to 1896, the stock market’s performance in the first two trading days of January has a surprisingly good record of forecasting the direction for the next 12 months.
For the first two trading days of this year, the Dow dropped 1.8%. That’s even bigger than the 1.6% decline the Dow posted over the first two days of 2008, a fateful year that would later experience the worst bear market since the 1930s.
Bill Gross, one of the world's most successful and renowned bond fund managers over the past 30 years, advised caution for investors in the year ahead in an advisory note he issued this morning:
"Be cautious and content with low positive returns in 2015. The time for risk taking has passed."
"When the year is done, there will be minus signs in front of returns for many asset classes. The good times are over," he wrote.
Of course, the pratfall in the stock market was far from the only economic news today.
For instance, Young America’s Foundation released its Youth Misery Index (YMI) numbers for 2014 today, and it’s a record high of 106.5. The YMI is calculated by adding youth unemployment, student loan debt, and national debt (per capita) numbers.
Youth unemployment in 2014 was 18.1 percent (18.1 on YMI), with almost six million young people between the ages of 16 and 24 not in school or work. Many young people are simply giving up on finding employment.
Student loan debt for 2014 rings in at a record-breaking $30,000 (30.0 on YMI). Student debt has risen at an average of six percent per year since 2008, and today, 70% of college seniors graduate with student loan debt. In addition, the job market still hasn’t recovered, leaving many recent graduates with little or no income to pay back their loans.
National debt per capita for 2014 is the highest it’s ever been at $58,437 (58.4 on YMI). Young people will be stuck paying for government debt they had no part in creating, and they’ll have to do it with less discretionary income than ever before because of record-high levels of student loan debt.
Add it all up, and the YMI comes out to an astonishing 106.5 up from 98.6 in 2013.
As government continues to expand under President Obama’s leadership, so does the Youth Misery Index. Since 2008, the YMI has increased by 53.7 percent, the highest increase under any President, making Obama the worst President for youth economic opportunity.
Meanwhile, lost in the shuffle are two economic statistics of note. US Factory Orders for November and a private December Purchasing Managers report.
For the fourth month in a row, US Factory Orders fell month over month. November's 0.7% drop is worse than the 0.5% decline expected and leads to the biggest yearly drop since March 2013. The firm Markit's US Services Purchasing Manager Index missed expectations of 53.7, coming in at 53.3, its lowest since February 2014 (which was blamed on cold weather). From record highs in June, the PMI has plunged non-stop for six months leaving Markit noting Q4 growth is looking more like 2.0% than the 5.0% exuberance in Q3.
Chris Williamson, Chief Economist at Markit wrote:
The US economy lost significant growth momentum at the close of the year. Excluding the drop in activity caused by the October 2013 government shutdown, the manufacturing and service sector PMIs collectively signalled the weakest expansion since the end of 2012. This is also not just a one-month wobble: the pace of growth has now slowed for six consecutive months. The PMI surveys act as good leading indicators of GDP data, and suggest that the pace of US economic growth will have slowed in the fourth quarter. According to the PMIs, fourth quarter growth is looking more like 2.0% rather than the 5.0% annualised rate of expansion enjoyed in the third quarter. Job creation has waned alongside the slowdown, with the survey indicating that monthly payroll growth has slipped significantly below the 200,000 mark. Companies have become increasingly reluctant to take on staff due to the cloudier economic outlook, in turn linked to various factors ranging from global geopolitical concerns, worries about higher interest rates and uncertainty about rising staff healthcare costs.
Given the sentiment, the activity in world stock markets and these economic statistics; it's not surprising that gold is up again today, now at a 3-week high. All of this has prompted investors to buy assets perceived as offering safety, such as gold.
1.5.15 - Gold Shines on European Troubles
Gold rose sharply this morning as global stock markets fell on concerns over the future of Greece in the euro zone as well as lingering concerns about collapsing oil prices. In addition, gold buying from top consumer China picked up ahead of the Lunar New Year. Gold last traded at $1,203 an ounce. Silver at $16.21 an ounce.
Gold prices were underpinned by lower European shares due to political uncertainty in Greece ahead of elections later this month, while Wall Street fell one percent due to crude prices at new five and a half year lows.
"What's happening in the euro zone, particularly concerns over a possible default by Greece ... is contributing to an element of short-covering or indeed some safe-haven buying of gold, particularly in euros," Mitsubishi Corp metals strategist Jonathan Butler said.
Gold, in terms of the euro, rose to its highest since September 2013.
European policy makers are striving to fend off a return of the region's debt crisis. Greece has begun an election campaign that Prime Minister Antonis Samaras said will determine the country's euro membership.
France's president also raised the possibility of Greece leaving the shared euro currency, but says that's a decision for "Greece alone" to make.
Some in Europe have expressed concern that if the left-wing Syriza party wins this month's general election in Greece, the new government may renege on terms of a hugely expensive international bailout plan. This has revived questions about Greece's fitness to stay in the euro.
Francois Hollande said on France-Inter radio Monday that Greece's new leaders "will have to respect the commitments made by their country."
But he insisted it's not up to others to say whether the result of the Greek vote means they should or shouldn't keep using the euro currency.
That, he said, "is for Greece alone to decide." A decision by a new Greek government to leave the eurozone would set off devastating turmoil in financial markets even worse than the collapse of Lehman Brothers in 2008, a leading international economist warned over the weekend.
A Greek exit would likely spark runs on Greek banks and the country’s stock market and end with the imposition of severe capital controls, said Barry Eichengreen, an economic historian at the University of California at Berkeley.
The exit would also spill into other countries as investors speculate about which might be next to leave the currency union, he said.
“In the short run, it would be Lehman Brothers squared,” Eichengreen warned.
Meanwhile, Chinese buying has picked up in recent weeks ahead of the Lunar New Year holiday, when gold is bought for gifts. Demand is likely to stay strong until the holiday in February.
Silver also rose sharply in sympathy to the action in gold.
1.2.15 - Gold: The Ultimate Form of Real Money
Gold last traded at $1,186 an ounce. Silver at $15.80 an ounce.
It has often been said that gold is the ultimate form of real money. That's because gold has been a universally trusted medium of exchange for some 5,000 years. Gold is the one asset that trades 24 hours per day everywhere in the world.
We saw evidence of gold's superiority to man-made currencies in 2014.
Gold was mostly flat against the US dollar in 2014 as the dollar strengthened in the last half of the year. And gold was up against virtually all other world currencies in 2014, including:
• The Russian Ruble
• The Argentine Peso
• The Swedish Krona
• The Japanese Yen
• The Brazilian Real
• The Israeli Shekel
• The Euro
• The Mexican Peso
• The Swiss Franc
• The Australian Dollar
• The Canadian Dollar
• The British Pound
• The New Zealand Dollar
• The South Korean Won
• The Chinese Renminbi
• The Indian Rupee
Now, as we start 2015, the first trading day in the US shows promise for gold as well.
Gold rallied this morning as U.S. stocks declined, boosting demand for the metal as a diversifying investment after data showed U.S. manufacturing expanded less than forecast in December.
The Institute for Supply Management manufacturing index dropped to 55.5% in December, down from 58.7% in November and below the 57% consensus forecast.
In addition, U.S. construction spending fell 0.3% in November. The consensus forecast had called for a 0.2% rise.
In other words, disappointing U.S. economic reports and statistics continue to appear and this does not bode well for the U.S. stock market or the U.S. dollar. Naturally, investors are turning to gold.
Over in Europe, conditions aren't any better.
Investors are bracing for another tumultuous year in the beleaguered eurozone, as hopes run low that the European Central Bank will be able to quickly lift the currency bloc out of a period of economic malaise.
In the third quarter of 2014, gross domestic product in the 18-country region recorded an annualized growth rate of just 0.6%. Italy stumbled back into recession, Germany barely grew and France’s expansion was largely attributed to companies building up inventories.
Economists’ picture for this year isn’t much rosier, making it tricky for investors to decide where to put their money. The main challenge for investors will be identifying asset classes in Europe that will offer returns while keeping risks balanced.
At times like these it is useful to remind investors that gold is an asset in its own right, not dependent on anyone's promise to repay.